Let me start this post by saying I love “buy-and-hold” real estate investing. I just wish it was easier.
Flipping real estate or wholesaling deals is appealing, as cash is quick and you know in a short time frame if you have made a good deal. Unfortunately, buy-and-hold real estate can take a long time to generate a meaningful amount of cash flow.
This leads me to today’s topic, as I want to highlight what I believe to be the hardest part of buy-and-hold real estate investing. If I asked 100 people what they thought the hardest part of buy-and-hold real estate investing was, these are the answers I would expect:
- Finding a deal
- Securing the down payment
- Finding a good tenant
- Managing tenants
- Handling evictions
In my opinion, all of these answers would be incorrect.I strongly believe the biggest issue with successful buy-and-hold real estate investing is:
How to Purchase Real Estate With No (or Low) Money!
One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
Lets explore an example that walks through some hypothetical numbers. Buy-and-hold real estate starts with the purchase of the first property that may produce $100-$400 positive cash flow in most months. While this is a great start, it will not take you to the finish line.
Therefore, you start plowing all of your extra cash flow, bonuses from work, and any extra cash you can generate into the second property. Now you have $200-$800 in cash flow most months, depending on the properties you purchased.
Why only most months? Stuff breaks unexpectedly, tenants leave without paying, and you may have an eviction to handle. Please realize right now that even the best cash flow estimate is just that– an estimate– so budget for surprises.
Now, back to the topic and hand: “Delayed Gratification”
Buy-and-hold real estate investing is hard because it frankly takes so long for to produce a meaningful pile of monthly proceeds. I have been doing this for 10+ years now, and I managed to ride one buy-and-hold real estate cycle almost perfectly, meaning I sold the houses at the peak and moved the equity into apartment buildings (delayed gratification again).
I took maximum advantage of this down cycle by buying 20+ properties before the Wall Street money woke up and changed the market overnight.
You see, it is ONLY after all this time (since 2001), nearly perfect timing on repositioning equity during a significant turn in the market (2006-2007) and taking maximum advantage of a once-in-a-lifetime buying opportunities (2008-2010) I can finally see the end in sight.
Ask yourself these questions:
Could you delay gratification for 10+ years? Could you plow every single dollar back into real estate? Could you take the negative surprises and keep moving forward? Would your partner be willing to sacrifice this long, or would they want to stop half-way and buy a bigger house?
What about the mistakes? No one goes through 10 years of real estate investing without making mistakes. Would you acknowledge them and move on? Would your partner hold them against you? Would you be turned off on real estate investing forever, only to be brought back in after the market turns and adds 20% to current prices?
Buy-and-hold real estate investing has worked for generations, and it will work for generations to come. Unfortunately, most people and couples are not wired to delay gratification for one week, let alone 1 year, 5 years or 10 years! If you are, congratulations, but without your partner on board, you have no shot, as they will spend it as soon as the extra money comes in.
I want to thank my wife for sticking with this 10 year run. It was never easy, never boring, but boy was it worth it.
Photo: Keoni Cabral